VIDEO: How To Look For, Prevent Scams During Heart of Tax Season
By WALLETHUB // March 22, 2017
Tax season can be a costly, confusing time of year
ABOVE VIDEO: The IRS warns taxpayers about an increasing number of tax scams in communities across the country. For even more information go to IRS.gov and type “scam” in the search box.
(WALLETHUB) – Tax season can be a costly, confusing time of year, with Uncle Sam expecting an on-time tribute and all sorts of schemers angling to steal refunds.
The history of tax fraud is just as long as that of taxes, you see.
But no one wants to deal with the monetary loss, credit-score damage or hassle that can accompany tax scams. So it’s important to have at least a basic understanding of what the most common types of tax fraud are as well as how to thwart them. You can find that information below
Tax Scams and Fraud
- Fraudulent Returns (Identity Theft): With a few key pieces of personal information – such as someone’s name, Social Security number and/or address – scammers can file a fraudulent tax return and ultimately pocket the victim’s refund, if any. It’s a serious problem, resulting in the IRS paying out roughly $11.1 billion from 2013 to 2015.So don’t ignore the warning signs: a letter from the IRS about multiple returns or a failed e-file attempt, in particular. That last one bears repeating: If you try to file online and are unable to do so, that could indicate a fraudster has already filed a return under your name.“The idea of someone else doing your taxes might seem pretty appealing in normal circumstances. In fact, it’s something you’d typically have to pay for,” said WalletHub CEO Odysseas Papadimitriou. “That’s definitely not the case when it comes to fraudulent tax returns. Not only could this type of redundant filing mess with your refund, but it will also likely trigger an inconvenient investigation by the IRS.”
With that said the best ways to prevent a fraudster from filing under your name are:
- File as early as possible every year, even if you don’t expect to owe any taxes or receive a refund.
- Take commonsense steps to safeguard your personal information, such as signing up for free 24/7 credit monitoring.
- Phishing: Fraudsters often pretend to be IRS agents, accountants or other types of financial professionals. They do so hoping to coax sensitive financial information from consumers, which they can then sell or otherwise exploit for profit. And they often try this type of scheme on recent immigrants who are filing in the U.S. for the first time, commonly threatening deportation as a penalty for noncompliance.“Phishing is perhaps the easiest type of tax fraud to avoid,” according to Papadimitriou. “All you have to do is ignore e-mails and phone calls from people purporting to be trustworthy financial officials.”After all, the IRS explicitly states that it “doesn’t initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information.” Furthermore, it “does not threaten taxpayers with lawsuits, imprisonment or other enforcement action,” such as deportation.So just remember these IRS protocols, be careful when clicking on emails and ask any over-the-phone phishers that get through to put you on their do-not-call list. If you can manage that, you’ll be just fine.
- Illegitimate Relief / Servicing Companies: Countless companies claim the ability to find hidden deductions, negotiate with the IRS on your behalf or perform other services that sound even vaguely legitimate. Unfortunately, many of them are merely seizing an opportunity to charge high fees for empty promises. And they’ll use creative contract language to limit the need for tangible results, shield themselves from liability and thwart you from doing anything about it.“We’ve all seen the budget TV spots and heard the radio ads that spew promises of tax salvation followed by a jet stream of fine print,” said Papadimitriou. “Some of them may even offer modest results due to sheer familiarity with the tax-collection process. Many others, however, simply gouge your bank account without really doing anything to improve your financial situation. The easiest way to ensure that doesn’t happen is to avoid such companies entirely.”Before signing anything, just make sure to do your homework: Research the company’s reputation, peruse reviews and carefully read anything that requires a signature, especially a supposedly binding contract.
ABOVE VIDEO: Learn the warning signs that you may be a victim of tax-related identity theft and steps to take if you are a victim.
Tips for Consumers
The tax-fraud prevention playbook differs very little from what you need to do to avoid other types of financial foul play. After all, a tax fraudster needs roughly the same information as someone applying for a loan under your name. So if any signs point to your personal info being exposed, you’ll know that your refund might be at risk, too.
- Familiarize Yourself with the Process: The more you know about how the filing and refund processes are supposed to work as well as what your rights and obligations are as a taxpayer, the harder you will be to scam.
- Order a Tax Transcript: Considering the IRS will give you a free copy of your records upon request, you can compare your reported income with what they have on file to make sure there aren’t any inconsistencies, which might indicate fraud. CLICK HERE to order a tax transcript.
- Use the “Too Good to Be True” Test: To some extent, we’re all inclined to be optimistic and to believe the sales pitches we see on TV and hear on the radio, especially if they offer simple solutions for complicated problems.More often than not, however, there won’t be any gold at the other end of these glittery promises. So, before signing up for any cure-all program, make sure to ask yourself: 1) Is this too good to be true? and 2) If it’s really that good, why isn’t everyone doing it?
- Know Whom You’re Talking to: Be on the lookout for two distinct types of predatory financial companies: 1) those impersonating a trustworthy organization or professional and 2) those offering shady services under their own brand names. Both types are fairly easy to avoid.
- Read the Fine Print: Carefully reading any contract before signing it is basic advice. But it’s especially important when dealing with tax companies given the sheer number of questionable players in the market. Make sure you know exactly what’s required of both you and the service provider, when payments are expected, and what your rights are as a consumer.
- Keep Private Information Private: In this day and age, there is both digital and physical information about everyone. There are also prying eyes when it comes to both. That’s why it’s so important to take the following basic precautions to prevent your information from falling into the wrong hands:
- Only enter payment information on “https” URLs.
- Never send account numbers and/or passwords through email.
- Use passwords that combine numbers, letters, and special characters, and change them on a regular basis.
- Make sure your computer has up-to-date security software.
- Get a lockable mailbox (with a slot for the mail carrier) to prevent identity thieves from stealing information, such as pre-approved credit card applications, that they can ultimately use to spend money under your name.
- Shred financial documents before throwing them away to protect against fraud borne from dumpster diving (which is actually more common than you’d think).
- Sign up for Credit Monitoring: No one has time to watch their credit reports around the clock or deal with the consequences of not doing do. That’s why signing up for free 24/7 credit monitoring is so helpful. It basically acts as an early-warning system for identity theft, fraud and costly credit report errors. So you’ll know when suspicious changes happen and be able to solve any related problems as quickly as possible.
- Review Your Monthly Bills: Credit card companies and other creditors sometimes make mistakes. Unusual balances, transactions or payment history also could indicate unauthorized use of your account. Your monthly bills are a good source of information when you’re looking into issues found on your credit report, too.
- Sound the Alarm for Lost or Stolen Cards: Promptly reporting a missing Social Security card, credit card, debit card, etc., will help limit unauthorized use of your financial accounts as well as your liability for fraudulent transactions.If you can’t find your Social Security card, for example, make sure to both call the IRS Identity Protection Unit (1-800-908-4490) and request a replacement from the Social Security Administration.This will help prevent the SSN from being used to steal your refund or your identity more generally.
CLICK HERE for a basic IRS tutorial the filing process, the more you know, the better you can protect yourself.
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